November 27, 2020

Running Low on Money: Part of Retirement?

 This type of question is e-mailed to me rather frequently:

"How do you manage your finances so that you make sure that you do not run out of money?"

If you are retired or looking forward to this next phase of your life, that is a question you have asked yourself. Everybody asks this question. Regardless of how well you have planned or how well you think you are positioned for life without a regular paycheck, you wonder and worry. I am 19 years into my retirement lifestyle, and I still ask this question on occasion, though much less often.

Here is the unfortunate reality: there is no way to make sure you do not run out of money. We live in an inter-connected world. What happens in China or Europe can have a straightforward impact on our financial status. Obviously, whatever wind is blowing, the folks in Washington blow through your life. Decisions in your state capital and even local government mandates are not without consequences.

The days when most of us lived on a farm or in a small, self-contained community where we were much more in control of our own financial destiny are gone and never coming back. We are at the mercy of many forces that we cannot control or even predict with much accuracy.

So, as we move through or try to plan for retirement, we are really in a Catch 22 situation. I like part of Wikipedia's definition: A Catch-22 often result from rules, regulations, or procedures that an individual is subject to but has no control over.

So, what's a conscientious person to do?  Simply, the best we can with what we have available. Over the past few years, I have written several posts that deal with the importance of taking personal responsibility for our financial well-being. Here are a few excerpts from a couple of those posts: 

"Financially, we must take control of our own money. If your bank is treating you poorly or layering on the fees, move to another bank or credit union. If you are comfortable with an Internet bank, go for it. If you have a financial advisor or stockbroker, are you confident he or she understands your desires, your risk tolerance, and your goals? Sit down with them and review your account—question everything that doesn't make sense to you. If you are unhappy, give that person new marching orders or switch to someone else.

We can't afford to be uninformed about the world of money. If you don't use a budget, start. If you have no idea how much interest your credit card company charges, find out. If you don't understand your pension or IRA, use the Internet to get educated. If you don't understand some aspect of the financial world that affects you, ask questions, and get answers you can understand. If you still believe these folks are really looking out for your best interests and ignorance is bliss, then you are likely heading toward a rude awakening.

The government may be unable to figure out how to tame a deficit, but luckily we are quite a bit smarter. We can choose to not spend more than we make. It is easy to eliminate things from our life that cost more than they are worth to us. We understand we can't afford every want when we want it. Instant gratification is a freeway to financial ruin. Simplifying our lifestyle, cooking more meals at home, using coupons, and shopping grocery store specials can save hundreds, if not thousands of dollars a year. 

We control how much we spend on travel, leisure, and entertainment. Leading a satisfying retirement is really about making smart choices. If you have saved enough money for the 12 day Caribbean cruise and it is important to you, take it. If you don't have the money, then stay off the ship. Spend the time finding things going on around you that are free or very low cost. Unlike the government, we don't have to spend money we don't have."

Another post focused on how our parents and grandparents lived. I suggested several of these approaches would work for us today:
  • Waste Not, Want Not.
  • Pull Yourself Up by Your own Bootstraps and Keep your Nose to the Grindstone.
  • A penny saved is a penny earned.
  • Keep your nose out of other's business.
  • Don't Cry Over Split Milk. The Past is Past.

So, the answer to the question, "How do you manage your finances so that you make sure that you do not run out of money," is actually quite simple. Let me reduce it to these five steps:

1. Save at every opportunity, both before and after retirement. If you think you are saving enough, you are probably wrong. Save more.

2. Spend as if you have less than you do. Under-consumption and living beneath your means are the two essential steps to financial well-being.

3. Take responsibility for your financial future. The minute to stop paying attention or turn it over to someone else is the moment your future is at risk.

4. Realize you have much less control than you think you do. It will help you stay sane in an insane world.

5. Enjoy your life with whatever resources you have. The biggest lie we tell ourselves would begin with the words, " if only I had enough money, I'd..." As far as money is concerned, there is no finish line. There never is a time when you can say, "now I have enough money, so now I'll be happy."

Of course, nothing this important is as simple as just following five steps. But it is a good start.


  1. Thnak you for this post. Here is my two cents: Have a budget and stick to it.

    1. A budget is a key building block of a financial life that allows you to determine the direction of your retirement.

  2. I'm example A on what not to do with financing. I have two retirement accounts sitting in two low risk investment programs and I rarely look at them. I don't even know what interest rate is on my credit cards because when I use a card---I pay it off each month. But I'm good at not spending money if I don't have it sitting in my checking account. I do worry about running out of money, especially now, with every trip to the grocery store showing alarming increases in goods we can't avoid buying.

    1. Of course, if you pay off your credit card each month (a very important thing to do) the interest rate is irrelevant. I can remember only one period of my life where I didn't pay off the full balance every 30 days: when I was unemployed with two young children and a wife. For about 9 months, the credit cards were part of our lifeline.

      I notice the grocery increases, too. I wonder if that is an effect of Covid with its disruption of supply chains and enough workers in critical fields.

  3. My advice is enjoy life but learn to live below your means. There is always a cheaper option to everything, you just have to decide if the cheaper option is right for you. I make a game out of comparing options, particularly when shopping retail, but it works for nearly any expense a household incurs. For example, this week we wanted to purchase 50 lbs. of sunflower seeds for birdfeeding, the choices were Amazon ($55), local feed store ($23), local big box hardware ($19) and the winner, small local farm store ($13) where curbside pick-up was free. A little effort can make a huge difference when saving money is the object.

    1. I gave up filling our bird feeder because of the expense. They were going through a ten pound bag once a week. I should investigate some of the options you found. I know the price at Walmart was too high to sustain. BTW, now I have a hummingbird feeder sugar water!

  4. Hi Bob! I'm not yet fully retired but I actually think that is a part of the answer to your post. Don't wait until you are retired to ask the question. I think all of your advice is great but I would add two things off the top of my head. If where you live is costing you too much, MOVE! I see far too many people living in homes that are costing them a HUGE part of their saving and refuse to scale down even though it is eating up their resources. Also, I have seen far too many retirees continue to finance their children to their own detriment. Buying presents and handing over money to children when the money needs to be kept for their own needs is a recipe for disaster. Okay, just my two cents this morning! ~Kathy

    1. Giving money to adult children can be a slippery slope with no clear cut answer. If a child is unemployed but actively seeking something, has just been hit with a large medical bill, or has another life crisis, it would be difficult to not help.

      But, when an adult child is living above his means because he/she like that lifestyle, then mom and dad have to be firm and hold on tight to the pursestrings.

      You are so right about living where one can enjoy life. People who spend over 50% of their income on housing are making a big mistake. Housing expenses at that level mean other things that make life worth living, or allow for adequate savings for emergencies and retirement are shortchanged.

    2. Dear Bob, people who stick their hands out, for a hand-out, are annoying. That includes various gimmee-fests - ya know, the graduations, showers and stuff, you get "invited" to. Hmm, any other time, you don't exist.

    3. I was listening to a radio call-in program the other day and the topic was "The bank of mom and dad" all about giving money to adult children. The premise was that there'd be a lot of calls about overindulgent parents and greedy young adults but it didn't go that way at all. In every case the callers were parents that were helping their out of work or reduced hours adult kids cope with the pandemic OR adult kids that as a last resort accepted money from their parents and felt guilt wracked for doing it.

      The stereotype of the lazy adult child living the life on their parent's money makes for good headlines but I suspect it's rarely the case.

  5. Being good savers has been our salvation. We probably saved too much. Time will tell.
    The long term future of our country's finances has me concerned. The national debt will be dealt with one way or another someday. If we had only 5 or 10 years left we could probably skate right through. 20 to 30 years is a whole different game. Right now I am betting on significant inflation at some point. Equities are going to be a necessary hedge against this possibility. If we have all of our assets in a low yielding investment the outcome will be dire. We may not control our government's policy but we can make investment plans to accommodate their ineptness.

    1. The national debt will eventually have to be dealt with. Either those responsible will figure out an approach or foreign governments will do so for us.

      Betty and I actually have more in our retirement accounts now than we did 19 years ago when we stopped working. Smart investing advice, spending less than they make, and the power of compu8ndinmg interest!

  6. "How do you manage your finances so that you make sure that you do not run out of money?" Wow, that is a big question and I’ll bet there a million answers to that one.

    The strategy I took was to do most of the things Bob mentions above during my working years and the truth is, after you’ve been doing them for decades, it pretty much becomes a habit that’s difficult to break even when we sometimes should.

    I did a lot of pre-retirement reading on retirement financials and the number one takeaway I found was to defer taking the guaranteed for life and indexed Social Security pensions to age 70 if you can afford to do so. By deferring you increase your guaranteed monthly cash flow from these sources and if you live to ripe old age, even into triple digits, you'll keep getting your Social Security pensions regardless with no worries about having to manage your savings to last who knows how long. From the experience I had with my parents (both lived into their 90s) no matter how healthy I am currently, I am not going to be the same physically or mentally in my 90s as I am now.

    The main reason for delaying is that you are moving both investment risk (the risk that your investments will lose value) and longevity risk (the risk that you will live a long time and run out of money) from your own savings to Social Security. Delaying also allows you to withdraw from your tax deferred retirement savings plans at a lower tax rate than if you were also collecting Social Security.

    If you die young then I figure you have a bigger problem than Social Security and at least got the chance to spend the money you scrimped and saved for retirement. I have seen too many people go to their graves hanging on to the money they've saved afraid to spend it in case they need it in their old age. I say if you didn't save it so you could spend it, why did you save it.

    P.S. I know that U.S. Social Security it on a bit of a shaky footing these days but I find it inconceivable that any government of whatever political stripe will let it fail or indeed even reduce the promised pension. Politicians know that seniors are the most reliable demographic there is to go out and vote and if they turn against you watch out!

    1. I know from personal experience it is not that easy to spend all your working years saving and living below your means, and then enjoying the fruits of those sacrifices. As you say, a lifetime of being prudent with finances makes it tough sometimes to cut loose even a little.

      I tend to agree with your about what will happen with Social Security. The problem with the U.S. government is it tends to wait until the very last moment to solve a problem. That often leads to unintended consequences.

  7. Many great comments here. One additional suggestion is to have your financial advisor prepare a financial plan for you that includes an estimate of how much you can withdraw annually from your investments while retaining enough to live out your projected lifespan. A conservative estimate is best (assume you’ll accrue lower interest, live longer, and have to cover some unanticipated expenses). Or there are many online calculators you can use to do this yourself.